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The October 2010 issue of Report on Business magazine.
The October 2010 issue of Report on Business magazine.

How Tim Hortons will take over the world Add to ...

When the steaming brew has steeped for precisely five minutes, the ritual begins. The two men pick up their deeply curved "cupping" spoons and bend their heads low over the first cup.

They dip in their spoons and inhale deeply. Then they move on, rotating the table-a sort of giant stainless steel Lazy Susan- as they go. When they have "broken" each cup, a colleague skims off the grounds, and the cuppers noisily slurp a spoonful of coffee. This apparent outbreak of bad manners is purposeful: It exposes the brew to oxygen and unlocks its flavour. The two colleagues roll the coffee around in their mouths to ensure the liquid hits all of their taste receptors: sweet, sour, bitter, salty.

The first pair of cups contains a Guatemalan. Sluuuurp. "Do you feel that buttery mouth-feel?" says the older man, Don Schroeder, after spitting expertly into the small sink beside his stool. Next is a Kenyan. Sluuuurp, spit. Notes of fruit and wine. Sluuuuurp. The Sumatran is earthy, even musty. No. 4 has the mild, almost neutral flavour characteristic of the world's coffee mecca, Brazil.

That's right, all you latte-sipping snobs: This is a story about Tim Hortons . And Tim Hortons takes its coffee seriously. Maybe it has no Cinnamon Dolce Crème Frappuccino on offer, but java is, after all, the company's stock-in-trade. Each of the two billion cups it serves annually, at some 3,600 restaurants from Victoria to St. John's, south to Kentucky and as far away as the Kandahar Airfield, tastes the very same.

Don Schroeder is the guardian of that famous flavour, not just by virtue of being Tim Hortons' CEO, but also because he's the senior coffee expert in the executive ranks. Twice a week (if he's not on the road), he sits down at this table for a cupping. The man to his side, similarly sporting a crisp, white, monogrammed lab coat, is Kevin West, Tim Hortons' director of coffee operations.

The fifth pair of cups contains Tim Hortons' secret blend-a mixture of beans cultivated in different regions around the world and shipped here, to Ancaster, Ontario. After taking a gusty sip of the flavour he knows by heart, Schroeder describes it thus: "Tim's is a medium roast. It has a nice mouth-feel. There's not too much acidity, but it's there. It has a softness. Sumatran coffee, you might want to drink once a day. Tim's, you want to drink three times a day."

As for what's in it, well, "You can't leave if we tell you."

That brew-whose nutty, citrusy finish is likely lost on most double-double devotees-has catapulted Tim Hortons to Canadian coffee supremacy. The company's 3,040 stores nationwide-all but a few of which are owned by franchisees-account for a remarkable 77% of java poured outside the home. Starbucks, meanwhile, has just 3% of the market (McDonald's has 7%).

This conquest, the elevation of the name of a long-departed NHL enforcer to the very definition of Canadian-ness, did not happen by accident. Tim Hortons attacks every facet of its business with the same precision as it does its signature brew. It blankets the country-small towns, big cities, highway rest-stops, hospitals, shopping malls-with stores, shutting out lesser chains and making it virtually impossible to avoid the place. The company continuously introduces new menu items that cater to every demographic-from doctors to hipsters-and every time of day.

Just as impressive as its share of the coffee market is the fact that Tim Hortons captures 67% of Canada's quick-service restaurant traffic in the morning (compared to McDonald's 11%), 17% of the lunch crowd and 57% of afternoon and nighttime snackers. And thanks to a new partnership with U.S.-based Cold Stone Creamery, it's taking on the $1.2-billion Canadian ice cream market-the perfect way to bring in traffic during the slower evening hours.

Tim Hortons has its franchisees locked down, too. There are the little things, like surprise "Always Fresh" audits that grade franchisees on how long customers wait at the drive-thru, the amount of time a pot of coffee is allowed to sit around, and whether there are weeds in the parking lot or graffiti in the bathroom. And there are the big things, like an ironclad franchisee agreement that maximizes profits flowing to head office in Oakville, Ontario. Store owners pay royalties of between 3.5% and 4.5% of gross sales, plus another 8.5% to cover rent. That's on top of an average $450,000 franchise fee to get started. The company brings in yet another steady stream of income as the exclusive supplier to its franchisees: coffee, cold cuts, soup, bagels, doughnuts, pastries and buns. All of which come at a markup that some franchisees claim borders on gouging-but more on that later.

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